For the next two months, TD Securities Inc. is seeking buyers for all or part of the Newfoundland company in an effort to boost its plummeting share price.
Over the past year, common shares have fallen 50 per cent in value, closing at C$4.55 Tuesday, and C$5 on Wednesday on the Toronto Stock Exchange. But it wasn’t merely the price skid that had hit most telecommunications companies.
“We’ve watched our industry peers’ share prices recover significantly from their bottom. Ours has not come back literally at all,” Brendan Paddick, Persona president and chief executive officer told The Globe and Mail newspaper.
The TD buyer hunt “will absolutely clarify how we go forward and what we look like. That could range from everything from I could be looking for a new job to I could be running everything the same way.”
Critics say the soul-searching exercise is the natural result of the company’s ill-defined growth strategy, particularly its move into The Bahamas. Investors, analysts and cable executives fear Persona will fail to attract any decent offers and the company will eventually be sold for a knock-down price.
“Why does the company elect at this point in time to undertake a sale?” Douglas Cunningham, a telecommunications industry consultant who owns 162,000 Persona shares told the Globe. He pointed to the transaction announced last month between Persona and Phil Keeping to issue 1.9 million shares to Mr. Keeping in exchange for a further five-per-cent interest in Cable Bahamas Ltd., which would increase Persona’s total interest to just under 30 per cent.
Mr. Cunningham estimates that deal values Persona shares at C$3.97each, a discounted price that makes little sense given the company’s desire to increase its share value.
“Who’s going to buy them? I don’t know. They are way behind the eight ball,” said Brahm Eiley, president of Convergence Consulting Group Ltd. He said Persona “has no leverage” in the potential auction of its rural Canadian operations.
“The lesson of cable is to be clustered in urban areas and build up a few systems,” Mr. Eiley said. Two years ago, Persona, formerly known as Regional Cablesystems Inc., had a strategy of consolidating small systems across Canada with an eye to one day selling to the highest bidder, which was a hit with investors. Early in 2001, shares hit a record C$13.65.
In February, 2002, the company’s growth strategy took a dramatic turn when it acquired a 25-per-cent interest in Cable Bahamas for US$45-million.
Mr. Paddick said the Bahamian company is “growing leaps and bounds,” and the system’s 57,000 subscribers
don’t think twice about paying a premium for the latest cable services, including high-speedInternet access.
But some Persona investors have been less enthusiastic, alleging Canadian operations have suffered at the expense of those in The Bahamas. Intense competition from direct-to-home satellite TV providers
has led to the slow erosion of the company’s Canadian subscriber base,
from a high of 240,000 to about 212,000 now.
Persona’s growth strategy came under fire from shareholders at a stormy three-hour general meeting last December. Issues of corporate governance, including a $1.1-million, interest-free loan to Mr. Paddick, were a lightning rod for criticism.
“I was quite shocked by the animosity towards management,” said George Armoyan, president and owner of Geosam Investments Ltd., a Halifax firm that owns about three million shares or roughly 15 per cent of
Persona’s equity, making it the company’s largest shareholder.
He wants Persona to “put its house in order” and reduce its more than $420 million in debt. If the company
improves its balance sheet and shares fail to recover, Geosam has not ruled out acquiring the company.
Major Canadian players Rogers Communications Inc. and Shaw Communications Inc., the two most likely
prospective buyers, declined to comment on the sale process, but several cable executives expect Persona’s rural operations will generate little interest. Potential buyers are keen on reducing costs
and have no appetite to acquire systems that may need costly upgrading to compete with satellite services.
“The best thing to do is close these systems down and give everybody a satellite dish,” one cable vice president said, tongue in cheek.
Mr. Paddick said: “It’s a process of validating your strategy. It’s easy for anyone to take shots at the strategy from the sidelines. This is essentially really going to clear up a lot of the uncertainty around what are the values of the Canadian assets or the Caribbean assets,” he said.
“Obviously, if we get zero interest from any players, there’s not a lot shareholders can do; either buy in to this Caribbean expansion strategy or put money somewhere else.”
The search for buyers was launched June 11 after a special committee was struck to maximise shareholder value with the help of TD.
